Not just a refinery, a super refinery | FT Alphaville

Not just a refinery, a super refinery

In case you may have missed it, there’s a big new kid on the refining block – Reliance Petroleum and its Jamnagar refinery. At peak production the site will be capable of processing a whopping 580,000 barrels per day making it the world’s biggest refinery complex.

The site was officially opened in December but it’s only now starting to ramp up production. As a result it will likley begin influencing market dynamics very shortly. The latest from Reuters:

NEW DELHI, Jan 15 (Reuters) – Reliance Petroleum will start fuel exports from its new refinery this month as it expects the plant’s secondary units to be ready in a few days, a company official said on Thursday. The company, a subsidiary of Reliance Industries , last month began processing crude oil at its new 580,000 barrels per day (bpd) plant, which sits adjacent to the parent’s existing 660,000 bpd refinery at Jamnagar in western India. “All processing units will be ready in next few days,” P. Raghavendran, president (refinery business) at Reliance Industries , told reporters on the sidelines of the Petrotech conference. These include a gasoline-making fluid catalytic cracking unit (FCCU), a hydrotreater and alkylation units, he said.

Reliance Jamnagar refinery

The refinery’s most interesting feature is that it is one of the world’s most complex. This enables it to turn cheaper heavy crudes into top quality products that meet increasingly tough specifications in western fuel markets. By doing so it will be able to compete with almost every refinery in the world. Because of its location in Jamnagar, Gujarat, India, it’s also perfectly situated to dispatch cargoes quickly and efficiently to a global customer base.

What’s more it will be a big producer of alkylate — a premium blending component used by refiners to satisfy the oxygenate requirements set by the Clean Air Act for reformulated gasoline. Without additives like alkylate, gasoline doesn’t burn completely, increasing tailpipe air pollution. Originally gasoline producers achieved these requirements, however, with MTBE blends – but as there were harmful health effects many states began to phase MTBE out introducing alkylate-blended substitutes instead.

Accordingly in October 2005, when New York and Connecticut banned MTBE and New Jersey announced it would do so too in January 2007, Nymex switched its main unleaded gasoline contract to the current Reformulated Blendstock for Oxygenate Blending or RBOB contract.

Unsurprisingly, demand for the additive soared. The problem was that many refineries, even complex ones, didn’t have alkylation units – meaning supply was at a minimum. The price of alkylate rose to such a degree many even began to dub it ‘liquid gold’. In fact, some analysts even connected the additive’s shortage to the cause of the 2008 gasoline price spikes.

The squeeze in alkylate supply is even more evident during the switchover period from US winter-blend fuels to summer-blend. That’s because in the summer oxygenate requirements are higher due to higher temperatures which cause untreated gasoline to evaporate more quickly.

Increased supply of alkylate from Jamnagar was therefore considered very good news for an ascending gasoline market. It was also seen as facilitating the production of summer-blend barrels for use in Latin America and Africa over the northern hemisphere’s winter period.

So, when Jamnagar gets fully into gear not only will there be a big new buyer in the crude market (specifically eyeing sour Opec-style crudes), there will also be a lot more competition selling into the more spec-heavy western markets – and summer-blend markets generally. All of this is fairly bearish for gasoline.

Of course for Reliance, with its 85,000 barrels per day of alkylate production – some degree of profitability is fairly guaranteed.

For everyone else, though, maybe it’s time to wave goodbye to those positive cracks?

Related links:
Reliance refinery – YouTube
Reliance Petroleum Website
– FT Alphaville
East to crack the West’s grip on refining –